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- This topic has 2 replies, 2 voices, and was last updated 3 years ago by HighFive.
- AuthorPosts
- November 23, 2020 at 8:01 pm #596197
Dear sir,
1) When we calculate the premium/value to shareholders,why do we sometimes use the Equity Value of combined co minus equity value of each individual company combined and sometimes we use the Total value of combined co minus total value of each individual company combined in order to get the synergy effect. Is this just based purely on the information given by the examiner and both methods are acceptable?
2) Cigno co
For this question, the manufacturing department value is calculated using PE ratio method and the the RND is calculated using FCF method. Using PE method gives rise to Equity value of the manufacturing business and FCF gives rise to TOTAL value of RND business.
So my question is, wouldn’t the addition of equity value of the manufacturing business and the Total value of the RND business not give rise to the TOTAL value of Anatro co as the manufacturing business value is Equity value. Or the selling of the manufacturing business does not include the debt transfer so the equity value is the TOTAL value regarding the manufacturing business?
November 24, 2020 at 11:11 am #5962541. It depends on the information given in the question. The increase in the total value of the business will go to the equity, subject to any changes in the amount of debt borrowings.
2. Selling off the manufacturing business will give $5,594M. The value of the R&D business is $31,884M.
Therefore the total value to Cigno is the two added together. How much of this goes to the current shareholders of Cigno depends on the amount paid to the investors in Antra (both equity and debt, and including the premium payable to the equity in Antra).November 24, 2020 at 12:06 pm #596267My confusion regarding this is that some of the question’s Answers apportions the TOTAL value of combined co to the Equity and Debt value and calculates the synergy benefit on the Equity value method while some questions does not and calculates the synergy based on the TOTAL value
For example using Cigno co
Would it be wrong for me to apportion the Value of the RND to Equity value 60% (
$19130M) plus the $5594M of manufacturing business minus Equity value of Anatra Co to get the Synergy value and then minus the premium payable to get negative value to the current shareholders of Cigno - AuthorPosts
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